Guidant Corp. Fined, Given Probation Over Defective Heart Devices

A federal judge fined Guidant LLC $296 million and ordered the troubled division of Boston Scientific Corp. to serve three years of probation for withholding information from doctors and patients about a safety problem with some implantable heart devices.

The sentence imposed by U.S. District Judge Donovan Frank in Minnesota on Jan. 12 requires Guidant to pay a fine of nearly $254 million, a figure based on the company’s pre-tax profit on sales of the defective devices as well as its “culpability” in the criminal case. Guidant also forfeits about $42 million to the federal government for selling the heart devices without first reporting the problems to regulators as required by law. Frank said the sentence “provides a deterrent effect, and most importantly, provides respect for the law.”

Guidant pleaded guilty nine months ago to two misdemeanor counts, but Frank rejected the deal, preferring instead to subject the firm to probation, community service and better scrutiny of the company’s ongoing compliance with federal law. Though the sentence includes probation, Frank said he’d be willing to reduce the length of the supervision if the company complies with federal law. Boston Scientific plans to ensure its division doesn’t stray—it has committed $15 million over the next three years to expanding two existing community programs.

Guidant attorney Daniel Scott said in court documents that the company had improved its compliance policies since 2005 and upgraded them further after it was acquired by Boston Scientific in 2006. “The company has learned a lot from this. It has learned a lot from its mistakes,” Scott told the judge. “We think, Your Honor, that we’re not what we were five years ago. We are much better.”

To show the court just how much better it has become, Guidant agreed to Frank’s demand that it make its quarterly reports available to probation officials and be subject to unannounced inspections. Federal prosecutors seemed pleased: “We think justice has been served,” Assistant U.S. Attorney Robert Lewis told the St. Paul Pioneer Press.

Lewis might be in the minority, though. Randy Hopper, an attorney representing victims involved in the Guidant litigation, called the final sentence a disappointment because of the improbability that the forfeited money will be given to patients. The lawsuit Hopper initiated on behalf of victims culminated in 2007 with Boston Scientific agreeing to pay up to $240 million to settle 8,550 claims.

“The company is pleased that this issue is now resolved,” read a statement released by Boston Scientific on Jan. 12. “We continue to believe that Guidant and its employees acted in good faith and with the intention of complying with applicable laws and regulations.”

Frank’s sentencing culminates five years worth of investigations into the 2005 recalls of three types of implantable cardiac defibrillators (ICDs). The devices shock failing hearts back into rhythm and are a top source of revenue for Natick, Mass.-based Boston Scientific, Minneapolis, Minn.-based Medtronic Inc., and St. Paul, Minn.-based St. Jude Medical Inc.

Guidant sold the defective ICDs under the brand names Ventak Prizm 2 DR, Contak Renewal and Contak Renewal 2. Lewis said in court that Guidant executives deliberately hid information from regulators, claiming in legal filings that the company admitted to problems with the heart devices only after two Minnesota doctors told The New York Times about its failure to reveal the product defects. The doctors were investigating the death of 21-year-old Joshua Oukrop of Grand Rapids, Mich., whose defibrillator short-circuited while mountain biking in March 2005.

Prosecutors claim the defibrillator’s defects have caused the deaths of at least 13 people, including one just last year.

After Oukrop’s death, the doctors sought more information from Guidant and learned the company had been aware of 25 other cases in which Prizm devices had short-circuited, according to prosecutors. The problem had not been broadly disclosed outside the company and Guidant rejected the doctors’ call for a public warning.

“Dr. [Barry] Maron’s response was to tell the Guidant officials that not communicating what they knew would be ‘the biggest mistake they would ever make,’ ” prosecutors wrote in a court filing this month. “Guidant’s retort to Dr. Maron was simply, ‘We don’t agree.’ ”

The Prizm devices were prone to an electrical arcing problem that would render them inoperative and unable to delivery therapy, prosecutors said. The company made changes to the design of the devices to deal with the issue in 2002, but failed to explain the matter to regulators in a full or timely fashion, prosecutors charged.

The Renewal devices suffered from a similar problem that the company also was dangerously slow to acknowledge, according to prosecutors. The company had determined by July 2004 that the product’s labeling was false and misleading with regard to the issue, prosecutors alleged, and the problem was serious enough that it stopped production and shipment of new Renewal devices.

Yet, Guidant “explicitly directed that any defective devices that had already left the factory continue to be implanted in patients,” prosecutors wrote in their filing.

“In all, 163 defective Renewals were implanted in the United States after Guidant ordered its factory to halt production,” prosecutors wrote. “Roughly 200 more were implanted outside the United States during this period.”